Encouraging Startups is vital to Australia’s innovation system

People often comment, and I think it is true, that there is a significant cultural difference between the Australian attitude to Startups and that in the USA. Americans have less hang ups about failing in a Startup enterprise. They tend to recognise that there are an awful lot of lessons that come out of a failure. They get on with trying to win on the next Startup.

Startups are the greatest source of new wealth creation. Successful founders have become household names: Gates, Jobs, Zuckerburg, Brin and Page. In Australia, Forrest. Internet startups are particularly interesting in that it is possible to turn an idea into many billions of dollars in remarkably short time.

At the recent “Science Meets Superannuation” summit in Melbourne, there was some discussion of how to break down the Australian culture. We could facilitate more exchange between industry and academia; we can provide more skills to budding entrepreneurs. Some of the legal barriers we discussed briefly like Australia’s capital tax system that needs some attention if we are serious about really giving entrepreneurs a better go.These issues have been talked about for a long time. Not that much has happened really. And if the US Senate approves H.R. 3606: Reopening American Capital Markets to Emerging Growth Companies Act of 2011, then Australia is in danger of falling behind.

As part of President Obama’s jobs package, he is asking the Senate to approve legislation that will take away a number of the barriers to American Startups. Currently Startups are forbidden to:

Ther’s plenty of lobbying going on, and the legislation has passed the House and is with the Senate. It is likely to become law.

Crowdsourcing is already growing at a extraordinary rate. When young entrepreneurs can offer their ideas to investors over the internet and take more serious investment, we could see massive new flows of capital. Secretary of the Department of Innovation, Dr. Don Russell, pointed out at
“Science Meets Superannuation” that one third of the $1.3 trillion Australian pool of superannuation funds is held in self-managed accounts (Amercian readers: read “pension fund” for superannuation). There is likely to be plenty of appetite for risk amongst that large, well educated pool of investors. Many of them will have an excess of funds even for a long retirement.

There are tight rules on how Australians can invest their pension funds. But when H.R. 3606, they’ll no doubt be a boom in ways of crowdsourcing foreign funds into US markets. It’s already no different buying shares on NASDAQ to the ASX for most Aussies. And the high Australian dollar has made us a pretty wealthy place. The definition of Angel Investor is going to change when entrepreneurs can ask the world for support, rather than just Silicon Valley.

So we could see a flow of capital into USA. Would we also see a flight of ideas? Andrew Forrest’s fortune is geographically-bound, but those that are ideas-based are not. If it is easier to raise capital, easier to fail and then recover, and the environment is more exciting and encouraging for Startup entrepreneurs, would we see more young Australians setting themselves up in the States? Of course it happens to an extent now, but usually at an expansion phase of a company.

We have a free trade agreement with the United States. We need to look at level the playing field for entrepreneurs. We shouldn’t just look at slowly addressing existing barriers but make sure we address those issues emerging issues that the Obama Administration are already tackling.